Navios Maritime Partners Q1 2024 Earnings Call Transcript

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May 14, 2024

There are 7 speakers on the call.

Operator

Thank you for joining us for Navios Maritime Partners First Quarter 2024 Earnings Conference Call. With us today from the company are Chairman and CEO, Ms. Angeliki Frangou Chief Operating Officer, Mr. Stratos de Ciepries and Chief Financial Officer, Mr. Erezironi and Vice Chairman, Mr.

Operator

Det Petrone. As a reminder, this conference call is being webcast. To access the webcast, please go to the Investors section of Navios Partners' website at www.navios mlp.com. You'll see the webcasting link in the middle of the page, and a copy of the presentation referenced in today's earnings conference call will also be found there. Now I will review the Safe Harbor statement.

Operator

This conference call could contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navin's patents. Forward looking statements are statements that are not historical facts. Such forward looking statements are based upon the current beliefs and expectations of Navios Partners' management and are subject to risks and uncertainties, which could cause actual results to differ materially from the forward looking statements. Such risks are more fully discussed in Others Partners' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks.

Operator

Navios Partners does not assume any obligation to update the information contained in this conference call. The agenda for today's call is as follows: first, Ms. Farmer will offer opening remarks next, Mr. Licipes will give an overview of Navios Partners segment data next, Mr. Tierone will give an overview of Navios Partners financial results Then Mr.

Operator

Pedro will provide an industry overview. And lastly, we'll open the call to take questions. Now I turn the call over to Natuzz Partners' Chairwoman and CEO, Ms. Angeliki Fambu. Angeliki?

Operator

Good

Speaker 1

morning to all of you who joined us on today's call. I am pleased with for the Q1 of 2024. For the quarter, we reported revenue of $318,600,000 and net income of $73,400,000 Earnings per common unit was $2.38 In the Q1 of 2024, regional conflicts, particularly in the Middle East, continued to affect transportation. This can be seen in a material reduction in transit through the Red Sea and the Suez Canal. In addition, the U.

Speaker 1

S. And European economies are managing inflationary pressures and are generally healthy, with Europe rebounding after a period of softness. As a result of these and other factors, this was Navios Partners' strongest first quarter financial performance ever. We remain cautious as many of the factors driving this robust maritime environment can change quickly should conflict driven inefficiencies clear and our economy suffer from a further wave of inflation. As usual, we continue to execute on our strategic initiatives by focusing on things that we can control, such as reducing leverage and modernizing our energy efficient fleet.

Speaker 1

I would also note that we continue to take long term coverage where available as rates are around or exceeding long term averages. For example, we recently chartered out a Capesize vessel for 2.9 years, almost 3 years, at a net daily rate of $28,500 Please turn to Slide 7. Navios Partners is a leading publicly listed shipping company diversified in 15 asset classes in 3 sectors. We have $318,400,000 of cash in our balance sheet. For sales, year to date, we sold 4 vessels, generating $92,600,000 gross sale proceeds, of which $9,800,000 of sales was completed in the Q1 of 2024.

Speaker 1

$82,800,000 of sales will be completed in the Q2 of 2024. For acquisitions, year to date, we spent $245,700,000 acquiring 6 vessels. We acquired 2 new buildings, scrubber fitted Aframax AR2 tankers for $129,100,000 We also acquired 4 Japanese built Kamsa Maxis, previously chartered in for $116,600,000 As for deliveries, we took delivery of 3 previously announced newbuilding vessels with employment. To our 5,300 TEU container ships fixed for an average rate of $37,050 net per day for 5.2 years and one is an Aframax LR2 tanker fixed at 26,366 net per day for 5 years. We continue to add to our contract backlog.

Speaker 1

This quarter, we added $211,200,000 in contracted revenue. Our operating cash flow potential remains strong. For the last 9 months, 2024, we estimate to have $53,300,000 of contracted revenue in excess of cash cost while having 13,820 open or index days. Turn to Slide 8. On this slide, we provide an overview of our execution in terms of selected metrics we feel are important.

Speaker 1

As you can see, our fleet remains the same size today as it was in year end 2022. With all of the purchases and sales effectively netted each other out. Not accidentally, our fleet age remains about the same. We maximize energy efficiency by maintaining a fleet of U3 vessels with the latest technology while we patiently await the development of more carbon neutral technologies. In addition, as you can see from the vessel value, the steel value of our fleet has improved by about 13% from the end of 2023.

Speaker 1

Given the recent overall strength of the market, each segment has performed well with the containership segment increasing the most. I would also note that these three values do not give any consideration to our contract backlog, which today is about $3,300,000,000 With a stable and performing fleet, our fleet metrics are strong. Our adjusted EBITDA is up 6% over the Q1 of 2023 and 30% over the quarter of 2022. Since year end 2022, we have increased our cash balance by 82% to 3.18 $1,000,000 Our current net leverage is 34%, an improvement of 4 20 basis points over year end 2023. Therefore, we are at a gliding path to our target net leverage range of 20%, 25%.

Speaker 1

I'll now turn the presentation over to Mr. Stratos Desypris, Navios Partners' Chief Operating Officer. Stratos?

Speaker 2

Thank you, Nelike, and good morning all. Please turn to Slide 9, which details our operating free cash flow potential for the remaining 9 months of 2024. We have fixed 67% of our available days at an average rate of $25,877 net per day. This contracted revenue exceeds our total cash expense by 53,300,000 dollars and we also have $15,820,000 OpenCore Index Linked Days that could provide potential additional free cash flow. On the right side of the slide, we provide our 42,112 Havilux base by vessel type, so you can perform your own sensitivity analysis.

Speaker 2

However, whatever number used, we should develop substantial cash flow for the remaining 9 months of 2024. Please turn to Slide 10. We are always renewing the fleet so that we maintain a young profile. It is part of our strategy to reduce our cargo footprint by modernizing our fleet, benefiting from new technologies and eco vessels with cleaner characteristics. During 2024, we get delivery of 3 vessels, 25,300 TEU container ships, both charter out for an average of 5.2 years at an average net daily rate of $37,050 net per day and 1 LR2 Aframax vessel, which has been chartered out for 5 years at $26,366 net per day.

Speaker 2

The contracted revenue for the 3 vessels delivered amounts approximately $190,000,000 Following these deliveries, we have $1,600,000,000 remaining investment in 26 newbuilding vessels delivering to our fleet through 2027. In containerships, we have 9 vessels to be delivered with a total acquisition price of approximately 672,000,000 dollars We have mitigated this risk with long term credit worth charters, generating about $900,000,000 in revenue over a 6.8 year average charter duration. In the tanker space, we acquired 17 vessels for a total price of approximately 950,000,000 dollars We chartered out 11 of these vessels for an average period of 5 years, generating revenues of about $500,000,000 We have also been opportunistically replacing all the vessels. In 2024, we have sold 4 vessels with an average age of 17.7 years for $92,600,000 At the same time, we exercised the purchase option on 4 chartered in Japanese built kamsarmaxes with an average age of 7.6 years for a total price of $116,600,000 Moving to Slide 11. We continue to secure long term deployment for our fleet.

Speaker 2

In 2024, we have created about $210,000,000 additional contracted revenue. Approximately $130,000,000 comes from our tanker fleet, about $41,500,000 from 3 container ships and $40,000,000 comes from our dry bulk fleet. Our total contracted revenue amounts to $3,300,000,000 $1,200,000,000 relates to our tanker fleet $400,000,000 relates to our drybulk fleet dollars 1,700,000,000 relates to our container ships. Charters are extending through 2,037 with a diverse group of quality counterparties. About 50% of our contracted revenue is expected to be earned in the next 2.5 years.

Speaker 2

I now pass the call to Eri Ciccone, our CFO, which will take you through the financial highlights. Erich?

Speaker 3

Thank you, Stratos, and good morning all. I will briefly review our unaudited financial results for the first quarter of 2024. The financial information is included in the press release and is summarized in the slide presentation available on the company's website. Moving to the earnings highlights in Slide 12. Total revenue for the Q1 of 2024 increased by 3% to $319,000,000 compared to $610,000,000 for the same period in 2023.

Speaker 3

Available days decreased by 3% to 13,540 compared to 13,900 and 8 for the same quarter last year. Our combined fleet time charter equivalent rate increased by 3% to $21,514 per day compared to 20,800 and $11 per day for the same period in 2023. In terms of sector performance, our PCE rate for our drybulk vessels improved by 29% to $14,209 per day compared to $10,998 per day for the same period last year. The time charter equivalent rate for our tankers was $28,087 per day, which is in line with Q1 2023 levels, whereas our container TCE rate decreased by 15% to $29,838 per day. EBITDA for Q1 2024 and Q1 2023 was positively affected from gains from vessel sales equal to $2,000,000 $33,000,000 respectively.

Speaker 3

Adjusted EBITDA for Q1 2024 increased by $9,000,000 to 164,000,000 dollars Adjusted net income for Q1 2024 increased by 8% to $71,000,000 compared to 66,000,000 dollars in Q1 2023. Adjusted earnings per common unit for Q1 2024 were $2.32 Turning to Slide 13, I will briefly discuss some key balance sheet data. As of March 31, 2024, cash and cash equivalents, including restricted cash and time deposits in excess of 3 months, were 318,000,000 dollars During the Q1 of 2024, we paid $55,000,000 net of related debt of pre delivery installments under our newbuilding program, vessel acquisitions and other capitalized expenses. We sold 1 vessel for $10,000,000 net, adding about $5,000,000 cash after the repayment of its respective debt. Long term borrowings, including the current portion net of deferred fees, were $1,900,000,000

Speaker 1

which is

Speaker 3

in line with Q4 2023 levels. Net debt to book capitalization decreased to 33.6%. Slide 14 highlights our debt profile. We continue to diversify our funding resources between bank debt and leasing structures, while 36% of our debt has fixed interest at an average rate of 5.6%. We also try to mitigate part of the increased interest rate costs having reduced the average margin for our floating bed by approximately 40 basis points 2.3% from 2.7% at 2022 year end.

Speaker 3

Furthermore, our strong cash balances contributed $3,400,000 of interest income. Our maturity profile is targeted with no significant volumes due in any single year. In terms of our newbuilding program, approximately 75% of our newbuilding financing is already concluded

Speaker 2

or in

Speaker 3

documentation phase at an average margin of 1.8 percent for floating rate debt. Turning to Slide 15, you can see our ESG initiatives. We continue to invest in new energy efficient vessels and reduce emissions through energy saving devices and efficient vessel operations. In February 2024, Navios, in collaboration with Launch Register, founded the Global Maritime Emission Reduction Center that will focus on optimizing the existing global fleet efficiency. Navios is a socially conscious group whose core values include diversity, inclusion and safety.

Speaker 3

We have strong corporate governance and clear code of ethics, while our Board is composed by majority independent directors. I'll now pass the call to Ted Petrone to take you through the industry section.

Speaker 4

Ted? Thank you, Ari. Please turn to Slide 17 for a review of the current trade disruptions. The Red Sea entrance leading to the Suez Canal, a strategic maritime transit point continues to operate at restricted transit levels. Red Sea disruptions have caused a rerouting of ships via the Cape of Good Hope, increasing cost and ton miles.

Speaker 4

Since the first half of December, have reduced by 59% for containers, 40% for tankers and 55% for dry bulk vessels. Panama Canal daily transit restrictions stand at about 33% below normal, with additional trends anticipated by month end. Please turn to Slide 19 for a review of the tanker industry. World GDP grew at 3.2% in 'twenty three, similar growth expectation in 'twenty four based on the IMF's April forecast. In spite of economic uncertainties in the crisis in the Ukraine and Red Sea, the IEA projects a 1,200,000 barrel per day increase in world oil demand for 2024.

Speaker 4

Chinese crude imports continued at healthy levels averaging at 11,000,000 barrels per day in Q1. After a seasonally strong Q4 in 2023, rates remain firm on the back of rising demand and increasing refinery throughput. The OPEC plus crude export costs have been mitigated by increased Atlantic to Far East exports increasing ton miles. Additionally, seaborne crude and clean trading patterns, which were initially diverted to longer haul routes due to the Russian sanctions, have once again been rerouted by the above mentioned Red Sea disruptions. These even longer route holes continue to increase ton miles putting upward pressure on both costs and rates.

Speaker 4

Turning to Slide 20. As previously mentioned, both crude and product rates remain strong across the board due to healthy supply and demand fundamentals and shifting trading patterns. Product tankers are also aided by healthy refinery margins and discounted Russian crude exported to the Far East, frequently returning to the Atlantic as clean product. Crew ton miles are expected to grow at 3.2% in 2024 and a further 3.6% in 2025. Similarly, product tanker ton miles are expected to grow 7% in 2024 and additionally 0.4% in 2025.

Speaker 4

These percentages increases anticipate some continued canal restrictions. Turning to Slide 21, VLCC net fleet growth is projected to be negative for both 2024 and 2025 at 0.8% negative and 1.8% negative, respectively. This decline can be partially attributed to owners' hesitance to order expensive long lived assets in light of macroeconomic uncertainty and engine technology concerns due to CO2 restrictions enforced since the beginning of this year. The current low order book is only 5.6% of the fleet or only 50 vessels, one of the lowest in 30 years. Vessels over 20 years of age are about 17% of the total fleet or 156 vessels, which is about 3 times the order book.

Speaker 4

Turning to Slide 22, projected product tanker net fleet growth is 1.5% for 2024 and 4.7% for 2025. The current product tanker order book is 14.3% of the fleet and is approximately equal to the 14.5 percent of the fleet, which is 20 years of age or older. In concluding the tanker sector review, the tanker sector across tanker rates across the board continue at historically healthy levels. The combination of below average global inventories, gross and oil demand and new longer trading routes for both crude and products, as well as one of the lowest order books in 3 decades and the IMO 2023 regulations should provide for healthy tanker earnings going forward. Please turn to Slide 24 for a review of the dry bulk industry.

Speaker 4

Strong Atlantic exports of coal, iron ore and grain continued in the New Year with the BDI averaging 18.24 for Q1, an 80% increase over Q1 of 2023. This countercyclical strength led by the Capes lifted the Cape average earnings to 24,286, the highest Q1 average since 2010. Dry load trade is expected to grow by 1.6 percent this year, enhanced by a 2.4% increase in ton miles with most of the growth anticipated to come from additional Atlantic exports of the above mentioned cargoes plus bauxite, the vast majority destined to China and Southeast Asia. Going forward, supply and demand fundamentals remain intact, longer duration trades, the historical low order book continuing canal restrictions and tightening GHG emissions regulations remain positive factors, which are reflected in the S and P period and FFA markets. Turning to Slide 25, the current order book stands at 9.3% of the fleet, one of the lowest since the late 1990s.

Speaker 4

Net fleet growth for 20 24 is expected to be only 2.9% and 2.4% in 2025 as owners remove tonnage that will be uneconomic due to the IMO 2023 CO2 rules enforced since the beginning of the year. Vessels over 20 years of age are about 9.9% of total fleet, which compares favorably with the low order book. In concluding our dry bulk sector review, continuing demand for natural resources and restrictions in transit in both the Panama and Suez canals, war and sanction related longer haul trades combined with slowing pace of newbuilding deliveries all support freight rates going forward. Please turn to Slide 27 for a review of the container industry. Unexpected strength in the trade flow coupled with continued rerouting away from the Red Sea and around the Cape of Good Hope increased ton miles pushing the SCFI back up to 2,306 last week, the highest level outside the pandemic era.

Speaker 4

Output pressure for time charter rates should remain for the duration of the Red Sea disruption. However, continuing record fleet growth should eventually modify these gains and reverse course when the Middle East conflicts settles.

Speaker 5

Although the

Speaker 4

trade is expected to grow by 4.1% in 2024 and 3% in 2025, newbuilding deliveries in 2024 and 2025 will be equivalent to approximately 17% of the fleet after record net fleet growth of 9% this year followed by 4.9% in 2025. This should continue to put pressure on rates for some time. Turning to Slide 28. Net fleet growth is expected to be 9% for 2024 and a further 4.9% for 2025. The current order book stands at 20.7% against 11.9% of the fleet 20 years of age or older.

Speaker 4

About 73% of the order book is for 10,000 TEU vessels or larger. In concluding the container sector review, longer term supply and demand fundamentals remain challenged due to economic and geopolitical uncertainties and an elevated order book. However, trade growth improvements, increasing ton miles and world GDP growth of 3.2% for 2024 provide a counterpoint to a challenging 2024. This concludes our presentation. I would now like to turn the call over to Angeliki for her final comments.

Speaker 1

Angeliki? This completes our formal presentation. We open the call to questions.

Speaker 6

We'll go now to Omar Khota with Jefferies. Please go ahead.

Speaker 5

Thank you. Hey, guys. Good morning, good afternoon. Thanks for the update. It sounds like and looks like things are going quite nicely for Navios with all three pillars of your business going well.

Speaker 5

Tankers, dry bulk containers, they all seem to be in decent shape. Does that change anything in terms of deploying capital or monetizing assets for you? Or is it more of the same where we can just expect you to continue to fine tune the fleet?

Speaker 1

Yes, we like Boeing, Tim. Good morning. Omar, basically, I mean, we are 4 months into the year. We are about 67%, 70% fixed. And we can see that basically, if you can see also from Slide 7, we have 50 $3,000,000 revenues above cash above our cash expenses.

Speaker 1

So that gives us a comfortable position. It gives us visibility. And we can see that this year will be very as or better than 2023. So this gives us ability to further implement our strategies. You have seen our cash building up even though we have a lot of newbuilding payments.

Speaker 1

And our leverage going down. Basically, on the other side, we have to mitigate the market risk. That's the big thing. And we are doing that, as you can see, constantly.

Speaker 5

Thanks, Angeliki. Is there thanks for that. Is there any kind of just in terms of what we're seeing in the market today? It seems like there's plenty of opportunity. You've obviously been very active.

Speaker 5

Is there a segment or asset class that you would say stands out as compelling above the rest at this point, whether it's for new investments or potentially divestment?

Speaker 1

Listen, we are opportunistic on this when we see values that make sense on all the vessels we will sell. I mean, we have relationships and build on new buildings are a little bit more difficult because values have moved up. So you need to make sure that the transaction that you are the new building that you are actually ordering, which is basically a liability unless you actually are able to fix it at an attractive return and a good residual value risk. This is the thing that we are constantly monitoring. With values of new buildings going up, it's more difficult to actually execute on that strategy because you need to see rates going up or you have to have certain relations.

Speaker 1

On the sports vessels, it's about we should see transaction, but it's all there's good long term charters, which are even dry picking up during longer durations at attractive rates. But this always also is influenced by the Red Sea, which let's not forget that the lead sheet can disappear at any moment, and that will be a good thing. And that will fundamentally change the rate environment we're living.

Speaker 5

Right. No, that's a good point.

Speaker 2

And maybe

Speaker 5

just one final one for me. You've had the stated goal now for some time of trying to get leverage down to that 20%, 25 percent level. I guess one question is, it seems perhaps that that's achievable over the next maybe 12 to 18 months. So the question would be, is that something you also see as a realistic time period to get leverage that low? And then also, have you thought about what happens to Navios once you achieve that goal?

Speaker 5

Has anything changed strategically going forward? Thank you.

Speaker 1

The goal to reach it is maybe about a year from today as we get the vessels into the water because you delever. Let's not forget that basically on the leverage ratio, we do not count the backlog that we have. We have about $3,300,000,000 of contracted revenue that creates a good buffer, a good visibility for the further years. And as you saw this year, we are already getting our new buildings into the water, which as we get them, we delever automatically. So this is a process that we will be watching very a lot on the remaining of the year and the beginning of the next.

Speaker 1

And this is a goal, is an end result. You are gliding to that direction, and we are also building the cash.

Speaker 5

Got it. Thank you, Angeliki. Appreciate it. I'll turn it over.

Operator

Thank you.

Speaker 6

And we have no additional questions standing by at this time. I'd like to turn the floor back over to Angeliki Frangou for any additional or closing comments.

Speaker 1

Thank you. This completes our Q1 results. Thank you.

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Navios Maritime Partners Q1 2024
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